Ukrainian headlines spark caution, dollar weakens – zimo news


© Reuters. FILE PHOTO: On January 21, 2016, the euro, Hong Kong dollar, U.S. dollar, Japanese yen, British pound and Chinese 100 yuan banknotes are seen in the illustration.REUTERS/Jason Lee/Illustration/File Photo

by Saika Chatterjee

LONDON (Reuters) – The dollar stalled on Thursday and the yen held on to earlier gains after reports of Russian mortar fire in eastern Ukraine rattled markets and boosted the appeal of safe-haven assets.

Russia-backed rebels accused Ukrainian troops of shelling their territory, violating a deal to end the conflict in the disputed Donbas region, the RIA news agency said, a report Ukraine later denied.

Following the news, as the dollar retreated from Asian highs, investors remained wary of another Russian invasion of Ukraine despite growing optimism earlier in the week, believing a diplomatic solution will be found to prevent conflict.

The dollar was steady at 95.747 against a basket of currencies after rising above 96 at the start of Asian trade.

But in a sign that markets are not yet panicking, the ruble remains below the November 2020 high of 80 hit last month, while bond yields are only marginally higher.

“This is a strong indication that market participants remain generally optimistic that the dispute will be avoided,” MUFG strategists said in a note to clients.

Geopolitical news overshadowed the minutes of the Fed’s January meeting, when policymakers agreed it was time to tighten monetary policy, but the decision would depend on meeting-by-meeting data analysis, according to minutes from the last political meeting.

Short-term U.S. Treasury yields fell and the yield curve steepened after the minutes as traders reassessed the possibility of a 50 basis point rate hike at the Fed’s March meeting. Money markets are pricing in a 72% chance of a 50 basis point rate hike next month, down from 80% at the start of the week.

The euro dipped 0.4% before rebounding on the Ukraine news. But Ukraine’s denial and reports that the attack took place in already disputed territory calmed things down and the euro last settled at $1.1382.

The yen and Swiss franc held on to earlier gains, up 0.2% and 0.1% against the dollar, respectively.

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